All Aviation Articles By greg reigel

When Is An Arbitration Clause In An Aircraft Purchase Agreement Enforceable?

As with many legal questions, the lawyerly answer is "it depends."  However, generally speaking, yes, arbitration clauses in aircraft purchase agreements are enforceable.  Here's why.

Courts favor arbitration.  Whether a claim is subject to arbitration will depend on the contractual language in the purchase agreement.  A court will presume a claim is subject to arbitration if an aircraft purchase agreement has an arbitration clause and an interpretation of the clause covers the claim. But that presumption may be rebutted.

When Does This Issue Come Up?

If a party to an agreement containing an arbitration clause is sued in court by the other party, the party being sued may ask the court to force the other party to submit its claims to arbitration. The court must then determine (1) whether an agreement to arbitrate was entered into and (2) whether the dispute falls within the scope of the arbitration provision.

Did The Parties Agree To Arbitrate?

Typically, a court will find that the parties agreed to arbitrate if the aircraft purchase agreement contains an arbitration clause or provision.  However, this may not be the case if the arbitration provision itself was fraudulently induced, which will be addressed in more detail below.

What Issues Did The Parties Agree To Arbitrate?

Assuming the first factor has been satisfied, the court will look at the language of the parties' agreement to determine what issues they intended to arbitrate. The language must either specifically state the issues subject to arbitration, or it must be sufficiently broad to cover the claims alleged.  If the court determines that it is "reasonably debatable" whether a dispute is subject to arbitration, it will require that the dispute be arbitrated.

Examples Of Arbitration Language.

An arbitration clause in an aircraft purchase agreement that states

“any controversy or claim arising out of or relating to this agreement, or the alleged breach thereof”

will likely be considered broad enough to encompass most claims relating to the agreement.  In that instance, a general attack on the purchase agreement alleging that it is void because it was fraudulently induced or the result of mutual mistake would still be subject to arbitration.

Conversely, an arbitration clause stating that it covers

“any claim arising out of or relating to the physical condition of the aircraft”

will only include claims with respect to the condition of the aircraft but not issues of whether the parties actually agreed to arbitrate.  Without some evidence of the parties' intent to arbitrate them, claims of fraud in the inducement of the agreement to arbitrate, rather than claims of fraud with respect to the aircraft purchase agreement as a whole or the condition of the aircraft, would be decided by the court rather than an arbitrator.

To put it another way, the court will not consider claims of fraud in the inducement of the aircraft purchase agreement generally.  Those claims will have to be arbitrated.  Only where the claim of fraud in the inducement goes specifically to the arbitration provision itself will the claim be decided by the court rather than the arbitrator.

Conclusion

If you have an arbitration clause in your aircraft purchase agreement, you will need to carefully review the language and compare it to the claims at issue.  Broad language means all claims will likely have to be arbitrated, including claims that the agreement to arbitrate was fraudulently induced.  Anything less than that broad language and claims may or may not be subject to arbitration.

ADS-B Compliance: The Potential Consequences Of Violating Rule Airspace

As most aircraft operators know, or should know, aircraft must now be equipped with ADS-B Out in order to fly in most airspace within the U.S.  Although it is possible to take advantage of limited waivers or exceptions, generally speaking ADS-B Out is required for operations in "Rule Airspace."

In connection with this requirement, the FAA recently updated Order 2150.3C - FAA's Compliance and Enforcement Program to explain potential sanctions for aircraft operations that do not comply with the ADS-B Out mandate.  Specifically, Chapter 9 of the Order now identifies the FAA's sanction policy/guidance for ADS-B related violations.

It is important to understand that the FAA will be taking these violations seriously. For example, if the FAA believes an airman is transmitting inaccurate ADS-B Out or transponder information with the intent to deceive, or is operating an aircraft without an activated transponder or ADS-B Out transmission (except as provided in 14 C.F.R. §91.225(f)) for purposes of evading detection, it will revoke that airman's certificates.

The sanction for other violations are not as severe, but are nonetheless significant.  The FAA characterizes the severity of the violation based upon levels of 1, 2 or 3, with Severity Level 3 being the most serious. And depending upon whether the FAA views the violation as careless or reckless/intentional, the sanction range could vary from low to maximum.

The FAA evaluates violations based upon impact on safety.  "Technical Noncompliance" involves violations where serious injury, death, or severe damage could not realistically occur as a result of the violation conduct, even if theoretically possible. A violation with a "Potential Effect on Safety"  occurs in a situation where serious injury, death, or severe damage could realistically result, but under the facts and circumstances would not often occur. Finally, a violation falls into the "Likely Effect on Safety" category where serious injury, death, or severe damage may occur more often as a result of the violation conduct.

When the operator fails to comply with ADS-B Out performance or broadcast requirements due to technical noncompliance, the violation is considered Severity Level 1. If the failure to comply with ADS-B Out performance or broadcast requirements has a possible effect on safety then the violation is Severity Level 2. And, not surprisingly, when the failure to comply with ADS-B Out performance or broadcast requirements has a likely effect on safety then it is a Severity Level 3 violation.

The specific sanction will also depend upon the type of violator.  If the violation is by an individual certificate holder, the airman will likely be facing suspension of his or her certificates.  An individual acting as an airman or a business entity will face a monetary civil penalty. In the case of a business, the amount will vary depending upon the size and revenue of the entity.

So, depending upon the circumstances, an individual certificate holder could face a suspension of his or her certificates for 20 -60 days, 60 -120 days, 90 -150 days, or 150 -270 days, depending upon whether the violation is in the low, medium, high, or maximum range, respectively. Other individuals and businesses could face civil penalties ranging from $100 to $34,174 per violation, depending upon the nature of the violator and how the FAA categorizes the violation.

In the event of multiple violations arising from the same act or omission, the FAA may give special consideration if the violation was careless, as opposed to reckless/intentional violations which receive no special consideration.  For an individual certificate holder the suspension could be anywhere from 30 -90 days, 90 -150 days, or 120 -180 days, depending upon whether the violation is Severity Level 1, 2 or 3, respectively. And an individual acting as an airman could be assessed a civil penalty in the amount of $5,000 -$10,000, $7,500 -$15,000, or $10,000 -$20,000, again depending upon whether the violation is Severity Level 1, 2, or 3, respectively.

For other individuals, the civil penalty could range anywhere from $50,000 to $200,000.  And business violators could be assessed civil penalties ranging from $50,000 to $600,000 depending upon the nature and size of the business, as well as the Severity Level of the violation.

Conclusion

Order 2150.3C provides the FAA inspectors and attorneys with a checklist for determining sanction in any given case involving an ADS-B violation.  Unfortunately, when a case gets to the point where the FAA is determining sanction, the actual calculations and method for arriving at the final assessed civil penalty is usually withheld.

However, it is important to understand that the facts and circumstances involved in any given case have an impact on both how the sanction is calculated as well as the amount of the civil penalty assessed.  If you find yourself defending against an alleged violation of Rule Airspace, knowing this information can help you defend yourself and, hopefully, successfully resolve the matter.

Aircraft Mechanic Refresher: 9 Points To Remember

Aircraft mechanics, like other aviation certificate holders, are subject to many regulatory requirements - both with respect to obtaining their certification as well as how they exercise the privileges of their certificates. And although mechanics may be familiar with these obligations, sometimes it helps to be reminded of some of the specific requirements with which they must comply.

To that end, here is a short list of some of the regulatory requirements relating to mechanics and performance of aircraft maintenance.

  1. An aircraft mechanic may perform maintenance, preventative maintenance or alteration of an aircraft part/appliance for which he or she is rated, BUT the mechanic must have previously  performed the work. The mechanic may also supervise that work provided that he or she has previously performed that work. 14 C.F.R. § 65.81.
  2. An aircraft mechanic may not exercise the privileges of his or her certificate/rating unless the mechanic has satisfied the recency of experience requirements of 14 C.F.R. § 65.83 within the preceding 24 months.
  3. An aircraft mechanic may approve and return to service an airframe or engine (including related parts/appliances) or perform a 100 hour inspection on either, but ONLY IF he or she holds the appropriate rating, i.e. Airframe and/or Powerplant. 14 C.F.R. §§ 65.85 and 65.87.
  4. The holder of a mechanic certificate must keep the certificate within the immediate area where he or she normally exercises the privileges of that certificate and must present it for inspection upon the request of the FAA or NTSB. 14 C.F.R. § 65.89.
  5. An aircraft mechanic who holds inspection authorization ("IA") may only exercise IA privileges while also holding a currently effective mechanic certificate with airframe and powerplant ratings.  And, the mechanic must have a fixed base of operation with appropriate equipment, facilities and inspection data. It is important to remember that this is FSDO specific. If the IA holder wants to exercise IA privileges within the service area of another FSDO, he or she must notify the new FSDO. 14 C.F.R. §§ 65.92 and 65.95.
  6. The IA is renewable for a 2-year period on March of each odd-numbered year.  The renewal requirements include the performance of certain maintenance activities or attendance at a refresher course acceptable to the FAA – all to confirm that the IA holder is "actively engaged." 14 C.F.R. § 65.93.
  7. An aircraft mechanic's IA must be available for inspection by (1) an aircraft owner, (2) another mechanic seeking certain approvals, and (3) upon request of the FAA, NTSB, or any Federal, State, or local law enforcement officer. 14 C.F.R. § 65.95.
  8. An aircraft mechanic who approves or disapproves for return to service an aircraft, airframe, engine, etc. after inspection must, among other requirements, make an entry in the maintenance record containing the type and description of the inspection, the date of the inspection and aircraft total time in service, and the mechanic must provide a signature and certificate number. 14 C.F.R. § 43.11.
  9. If a mechanic performing a required inspection finds an aircraft unairworthy or not in compliance with the type certificate data, AD’s, or other approved data, that person must give the aircraft owner or lessee a signed and dated list of discrepancies and applicable equipment within the aircraft must be placarded “inoperative” as appropriate. 14 C.F.R. § 43.11.

This list is by no means all-inclusive.  An aircraft mechanic is subject to many more regulatory requirements.  However, this list highlights some of the requirements most pertinent to an aircraft mechanic's exercise of his or her privileges. And even though an aircraft mechanic may deal with these issues on a frequent basis, a quick refresher never hurts.

FAA Oversight Of Part 135 Drone Operations: What Can Operators Expect?

Part 135 Drone OperationsAs you may know, the FAA is charged with oversight of the national airspace ("NAS") and aircraft operations conducted within the NAS.  This includes making sure that that air carriers (those who transport persons or property for compensation or hire - Part 121 and 135 operators) are complying with heightened regulatory requirements applicable to those operations.

Until recently, air carriers were limited to operations with manned aircraft.  However, that is no longer the case. The FAA has issued Part 135 authority to certain operators of unmanned aircraft systems ("UAS"). If you have received, or anticipate receiving, approval to conduct 0n-demand UAS operations under Part 135, you should know what to expect from the FAA.

The FAA's Guidance.

Fortunately, this isn't a secret.  In fact, the FAA recently issued an order (FAA Order 8900.527) updating the guidance it provides to its inspectors to explain the surveillance and inspections required for Part 135 UAS operators.  Not surprisingly, the guidance isn't too different from typical Part 135 oversight, but it does specifically address issues unique to UAS operations.

So, what will the FAA inspectors be doing? They will be conducting surveillance of both the airworthiness of the UAS being operated and the operations conducted by the air carrier.

Airworthiness.

With respect to airworthiness, this will include inspections of the following:

  • The operator's facility, including operator data, maintenance facilities, data and records and, of course, the UAS airframe, powerplant, critical systems and AD compliance, as applicable;
  • The operator's manuals and procedures; and
  • The operator's records and recordkeeping systems;

Operations.

With respect to the operator's use and operation of its UAS, the FAA will inspect the following:

  • The operator's air operator certificate;
  • The operator's Operations Specifications;
  • The operator's Operations Manual;
  • The operator's records, including trip records, crew records, PRIA records, and any additional records required by an exemption, waiver, or certificate of authorization;
  • The operator's training program; and
  • The operator's UAS, as well as the operator's actual use/operation of the UAS.

Conclusion.

This list is certainly not all-inclusive.  However, it gives operators a good idea the major items the FAA inspector(s) will be inspecting/reviewing to make sure the Part 135 UAS operator is conducting operations in compliance with the regulations.

And, of course, the length and scope of the inspections will vary depending upon the inspectors involved, the same as it does for Part 135 manned aircraft operations. But if you are familiar with this guidance, you will at least have a general roadmap of what to expect when the FAA conducts surveillance and inspections of a Part 135 UAS operation.

Greg Reigel is a partner at the firm of Shackelford, Bowen, McKinley & Norton, LLP in Dallas Texas.

Greg has more than two decades of experience working with airlines, charter companies, fixed base operators, airports, repair stations, pilots, mechanics, and other aviation businesses in aircraft purchase and sale transactions, regulatory compliance including hazmat and drug and alcohol testing, contract negotiation, airport grant assurances, airport leasing, aircraft related agreements, wet leasing, dry leasing, FAA certificate and civil penalty actions and general aviation and business law matters.

He can be reached via:
Email: [email protected]
Website: https://shackelford.law
Phone: 214-780-1482

Tips For Renting Your Aircraft

Renting your Aircraft

If you own an aircraft and are not utilizing it as much as you would like or if you would like to try and recover some of the cost of owning the aircraft, you may have thought about renting your aircraft to other pilots. As a practical matter, that makes some sense. But before you actually rent your aircraft to another pilot, here are a few things you should consider.

Aircraft Owners May Rent Their Aircraft To Third Parties

It is important to understand that the FAA does not prohibit aircraft owners from renting their aircraft. In fact, the regulations specifically contemplate rental arrangements. So, renting your aircraft is permitted, provided that you comply with applicable regulations. The FAA provides guidance on what is and isn’t a permissible rental arrangement in Advisory Circular 91-37B Truth in Leasing (although truth in leasing requirements only apply to large civil aircraft, the general lease concepts discussed in the AC apply to leasing arrangements for all aircraft).

Make Sure Your Insurance Permits Aircraft Rental

Most aircraft insurance policies will extend coverage to other pilots who fly your aircraft provided that the pilots are either expressly identified in your policy or if they have the necessary experience/qualifications to meet the “open pilot” clause of the policy. However, if you are going to charge the pilot for use of your aircraft, you need to confirm that your policy allows you to rent or lease your aircraft to a third-party. Most aircraft policies issued to owners for personal/business flying do allow aircraft leasing, but it is important to confirm this with your insurance underwriter.

Also, rather than paying to obtain their own insurance policy or renter’s insurance to cover their use of your aircraft, most renter pilots will want to be named as an additional insured under your policy as this can oftentimes be done at no cost to you or the renter pilot. In that case, renters will typically ask for a certificate of insurance that reflects not only that they are added to your policy, but that they are covered for their operation and use of their aircraft. This is important because it doesn’t do the renter pilot any good if he or she is added to the owner’s policy but only covered for the owner’s operation of the aircraft, rather than his or her own use.

Renting Your Aircraft Can Trigger Tax Consequences

In most states, when an aircraft owner rents an aircraft to a third-party the owner is required to collect and remit sales tax on the rent paid by the third-party for the aircraft. If you are in one of those states, in order to rent your aircraft you will need to obtain a sales tax number so you can collect and remit sales tax to the taxing authority. This is the aircraft owner’s obligation and the taxing authority will hold the aircraft owner responsible for any sales tax the taxing authority believes the aircraft owner should have collected and remitted, regardless of whether the renter pilot actually paid the sales tax to the aircraft owner.

Also, when you rent your aircraft many taxing authorities view that activity as commercial activity which then means your aircraft could be subject to assessment of personal property tax on the value of the aircraft, or some portion of the value based upon the pro-rata rental versus personal use of the aircraft. Although not all states assess personal property tax on aircraft, if you are in a state that does you will want to determine your potential property tax exposure before you decide to rent your aircraft.

Conclusion

Although you will also have other things to consider as you decide whether to rent your aircraft to other pilots, these three issues should be near the top of your list. And if you understand and address these issues up front that will help ensure a successful aircraft rental experience for both you, the aircraft owner, and your renter pilot.

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